Young startups eliminate brokers in real estate transactions

Startups such as NoBroker, NestAway Technologies and Grabhouse allow landlords to directly list their properties on their portals while using technology to keep brokers awayET Bureau | March 09, 2016, 07:44 IST

NEW DELHI: After companies like 99acres, Housing.com and CommonFloor changed how people search for properties, a clutch of young startups are now solving a bigger problem: how to eliminate the broker or the main intermediary involved in real estate transactions who charges a hefty fee per transaction and often fail to win trust. Startups such as NoBroker, NestAway Technologies and Grabhouse allow landlords to directly list their properties on their portals while using technology to keep brokers away.

"Most brokers thrive because of the acute information asymmetry both on the side of the buyer and seller. Startups are trying to solve this using technology," said Mayank Khanduja, principal at venture firm SAIF Partners.

These startups are operating in the $2-billion residential property market, mostly involving renting services, and they keep brokers away to differentiate their services from sites such as 99acres.

Amit Agarwal, CEO at NoBroker, said 90% of the properties listed on property sites are posted by brokers. "So you can find a house online but you end up paying the brokerage," he said.

NoBroker has developed an algorithm to scan through the profile of a listed entity as soon as it registers, observes its activities and delists it in case it’s found to be a broker.

Bengaluru-based NestAway Technologies is attempting a different model altogether wherein it converts unfurnished houses into fully-furnished, managed apartments, providing them at affordable prices to verified tenants. While brokers are not involved in the transaction, it ropes in local brokers to help close the sales process by showing the home to prospective tenants and attending to service requests, while paying them a monthly fee. "This is in sharp contrast to the one-time payment model that exists in the market," said Amarendra Sahu, CEO at NestAway.

These startups allow for appointments to be scheduled between tenants and landlords online, while the negotiations and final payments are concluded online. The idea is to conclude all these processes online in the longer run.

While Khanduja of SAIF Partners believes eliminating the broker entirely is not possible, there are huge sections of the market wherein brokers are not required, especially those that are online and tech savvy. This segment is only going to grow.

Mumbai-based Grabhouse, which is backed by Sequoia and Kalaari Capital, for instance, targets college students looking for paying guest accommodations or professionals looking to rent out a flat on a sharing basis, besides families looking for complete flats on rent. As most venture investors turn towards revenue-generating models, this is one model that holds promise early on.

Grabhouse, which started around 2014, is generating `80 lakh per month currently and plans to close the next financial year with `5 crore of annual revenue.

NoBroker said it started monetisation only two months back and since then revenue growth is robust. "Monetisation is our focus right now and in the next 18 months, we plan to achieve profit-bility," said Agarwal. NoBroker, which has serviced 100,000 customers across Mumbai, Bengaluru, Pune and Chennai, plans to expand to the top 10 cities in near future.

Whereas for listing sites like 99acres or CommonFloor, the main revenue model is advertising and listing fee from brokers, these startups follow an entirely different line. Most of them offer subscription plans to tenants in order to view certain number of owner contacts besides charging for other services. These startups, will however, have their own challenges, including entering into non-online savvy section of the market and bringing the entire transaction online. "This is fairly-new model even globally and has parallels with US-based startups like Zumper and RadPad which are fairly young in the game," said Khanduja of SAIF Partners.

Currently, the Goods and Services Tax (GST) is levied at 12 per cent on payments made for under-construction property or ready-to-move-in flats where completion certificate has not been issued at the time of sale.